06/28/2013

Business Succession Through Incentive Trusts

The prospect of whether or not a
family business will survive after the owner passes is questionable. And
although the statistics regarding succession of family business to heirs can be
disconcerting, there is hope out there in the form of trusts.

First, the troubling statistics:
“Less than one-third of family businesses survive the transition from the first
to the second generation, and only about 10 percent survive the transition to
the third generation, according to stats reported in the Harvard Business
Review.” While wealth can be transferred through a bit of effort on the
planning side, it is not the same as transferring the motivation and the
ability to pull it off thereafter.

How can a trust help with
motivation and to train up ability? That depends on how you frame the trust and
the conditions you set to slowly bring a beneficiary/heir up to speed. The
original article has some very specific advice, but the main point is that
incentive-based trusts are a powerful tool.

If you have a business that
needs to be run, and a legacy to leave behind, then you could do well with an
incentive trust plan. So, what values do you enshrine in the trust and how do
you offer incentives? The answers to these and other salient questions are
specific to each and every situation and family.